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The federal student loan payment pause is over, and borrowers have a new income-driven repayment (IDR) plan option that could slice monthly payments in half, fast-track them to loan forgiveness and more: Saving on a Valuable Education, or SAVE.
Though most borrowers can qualify for SAVE, the plan is better suited for some borrowers than others. Generally, those who earn the least relative to how much they owe stand to benefit the most.
The best repayment plan for you depends on a number of factors, including your financial goals, income and loan balance. But if you fit into any of the borrower profiles below, SAVE could be a good fit.
You took out $12,000 or less in student loans
Borrowers who took out $12,000 or less to fund their undergraduate education can get any remaining student debt forgiven after 10 years of SAVE plan payments. Even $0 payments count if borrowers qualify based on their income.
Each additional $1,000 borrowed above $12,000 adds another year onto the forgiveness timeline. For example, if you took out $14,000 for college, you’ll get forgiveness after 12 years on the SAVE plan. The maximum repayment time to reach forgiveness is 20 years for undergraduate loans only, and 25 years if you have graduate debt.
You’re low- or middle-income, or unemployed
If you earn less than about $32,800 per year as a single tax filer, or less than $67,500 for a family of four, you’ll qualify for $0 monthly payments under SAVE — while also making progress towards loan forgiveness. Interest will not build while you have $0 payment, either.
Even if your income is above that threshold, your payments may be more manageable under SAVE than other repayment plans. That’s because SAVE protects more of your income — 225% of any income above the poverty line is shielded, rather than 150%.
If you lose your job and income entirely, you’ll qualify for interest-free $0 payments under the new IDR plan, without having to sign up for a forbearance and deferment.
You have an undergraduate degree only
SAVE favors borrowers who borrowed for an undergraduate education, whether that was at a community college, four-year university or professional training school. Starting in July 2024, borrowers with undergraduate debt only will see the monthly payments cut in half, from 10% of their discretionary income to 5%.
Among the undergraduate borrower group, those with two-year associate’s degrees or professional certificates will benefit the most from SAVE loan forgiveness, according to an October report by the Urban Institute, an economic policy think tank.
Under SAVE, borrowers who got their 2-year associate's degree from a community college would typically pay back 69% of their principal balance before reaching forgiveness, while those who completed professional certificate programs would typically be required to pay back just 35% of their original principal balance, the report found.
You qualify for Public Service Loan Forgiveness
Borrowers can make progress towards Public Service Loan Forgiveness (PSLF) while enrolled in SAVE. If you’re eligible for PSLF, opt for SAVE over other IDR options or the standard 10-year repayment plan if your monthly payments will be smaller.
To qualify for PSLF, you must work for an eligible public service, government or non-profit employer. After 10 years of payments while working for an eligible employer — regardless of loan type or principal amount — your remaining balance will be forgiven.
You’re at risk of delinquency or default
Borrowers in default will be allowed to enroll in SAVE, giving them access to more affordable monthly payments and eventual loan forgiveness. Previously, student loan borrowers in default were blocked from any IDR plan.
Another perk: Borrowers who are 75 days late or longer on their payments would also be automatically enrolled in the revised IDR plan. This could help struggling borrowers avoid student loan default in the first place — if they lose their income, they’ll qualify for $0 monthly payments under the revised plan.
You can’t pay off your interest each month
SAVE prevents a ballooning student loan balance even as you’re making payments. Any interest unpaid each month will be covered by the government, so long as the borrower keeps up with their monthly SAVE payments. The leftover interest would not accrue.
This will help borrowers whose SAVE payments aren’t large enough to cover their interest each month.
Who might not benefit from the new IDR plan?
Parents who borrowed to help their kids attend college
Parents who took out federal loans — known as Parent PLUS loans — to help their kid pay for college are ineligible for SAVE. Currently, these borrowers are only eligible for the least-generous of the four existing IDR options, which is called Income-Contingent Repayment.
Borrowers with graduate school debt
Borrowers who took out federal loans for graduate school might still see payments shrink under SAVE relative to other repayment plans, but the boost would be less favorable than for those with only undergraduate loans.
People with only graduate school loans will pay 10% of their discretionary income per month under SAVE, compared to 5% for those with undergraduate loans only. Borrowers with both graduate and undergraduate debt will pay somewhere between 5% and 10%, based on a weighted average of their loans.
Plus, these graduate borrowers will reach forgiveness after 25 years, rather than 10 to 20 years for those with undergraduate loans only.
IDR plans pin payments to your income, so if you’re a high-income borrower, SAVE could give you larger payments than you would get under the standard 10-year repayment plan.
High earners aren’t as likely to get loan forgiveness under SAVE, either. Because these borrowers will have higher payments proportional to their income, they may pay off their loan balance before the 10 to 20 or 25 years of payments needed to qualify for forgiveness.
However, increasing your 401(k) contributions and putting money into a Health Savings Account can reduce your taxable income, and thus your monthly payments under SAVE.
How can I sign up?
Before opting for SAVE, use the Federal Student Aid office’s loan simulator tool. This will give you an exact breakdown of your monthly payments, overall amount paid and loan forgiveness potential under various repayment plans, including SAVE. The results will be personalized to you based on your loan amount and type, income, household size and more.
When you’re ready to sign up for SAVE, submit an application on studentaid.gov/IDR or contact your federal student loan servicer. If you have multiple federal student loans, you may need to consolidate them before you can sign up for SAVE.
Application processing can take up to four weeks. If you can't afford to make a payment on your current repayment plan in the meantime, a 12-month student loan on-ramp allows borrowers to skip payments until October 2024 without their loan becoming delinquent.
After you sign up for SAVE, you’ll need to recertify your income for IDR each year.
Borrowers who were enrolled in the REPAYE IDR plan prior to the pandemic payment pause have been automatically moved into SAVE.